Bitcoin beat down? Fed’s Randy Quarles warns on digital currencies dangers
The U.S. Federal Reserve’s newly appointed chairman for supervision, Randy Quarles, cautioned business leaders and central banks against adopting new payment system technologies too quickly on Thursday.
While acknowledging the importance of innovation, when it comes to payment systems, Quarles noted during a speech in D.C. that proven resiliency is necessary to gain public trust, and so far, “digital currencies are a niche product that sometimes garner large headlines.”
One novel feature of blockchain-based systems is that they eliminate the middle-men, or financial institutions, from transactions. Quarles cautioned that without that critical backing and institutional support, “it is not clear” how a digital currency payment system would function “in times of stress.” He noted that during crisis periods, people have often made bank runs to secure physical currency, which could cause widespread price risk and liquidity concerns for a digital currency-based system.
Some have proposed that a digital currency issued by the Federal Reserve could ameliorate some of these problems, but Quarles posited that wide scale adoption of a digital currency could make the system more vulnerable to other dangers, like cyberattacks or use in money laundering or terrorist financing schemes.
The central bank leader said that at current levels of use, digital currencies pose no major concerns.
Quarles echoed a statement made by Fed chair nominee Jerome Powell earlier this week, that, the U.S. central bank will continue to keep a watchful eye on new innovations and developments in the space.
“Time will tell how these new technologies – and others – can contribute to a safe and secure payment system and broader financial system,” he said. “The Federal Reserve has been actively monitoring these developments and will continue to do so.”
Powell said low volume makes bitcoin insignificant for current monetary policy decisions, but over the “long, long run,” blockchain could “have significant application in wholesale payments.”
Meanwhile, on Thursday, the value of bitcoin plunged as low as $9,000, losing 20% of its value over the past 24 hours. The recent decline followed an astronomical year-to-date ascent of more than 1,000%, as of Wednesday.